How to Handle Underperforming Suppliers Without Damaging the Relationship

Balancing accountability with empathy in Supplier Performance Management (SPM) and Supplier Relationship Management (SRM)

Let’s be real for a moment: no supplier sets out to underperform. No procurement leader wakes up excited to have that conversation either—the one where you sit down with your supplier and say, “Hey, something’s not working here.” Yet these moments define strong partnerships.

When suppliers underperform, it’s tempting to jump straight to penalties, contract reviews, or even finding a replacement. But here’s the thing—cutting ties too quickly can cost you more than you think. A great supplier relationship takes time, trust, and effort to build. Throwing it away at the first sign of trouble can disrupt your supply chain, damage morale, and leave money on the table.

This is where Supplier Performance Management (SPM) and Supplier Relationship Management (SRM) come in—not as buzzwords, but as powerful strategies for navigating tough conversations with empathy, structure, and a focus on solutions.

Let’s dive into a practical, human-centered way to handle underperforming suppliers without burning bridges.

1. Spot the Warning Signs Early

If your supplier is struggling, chances are the signs were there long before the issue became obvious. Missed delivery deadlines, inconsistent quality, rising defect rates, or delayed communication are usually early indicators that something’s off.

Here’s the catch: many procurement teams notice these red flags but don’t act until the problem escalates. With SPM, having clear performance metrics and dashboards isn’t just about data, it’s about visibility. You want to see the smoke before there’s a fire.

Tip: Use metrics like OTIF (On-Time In-Full delivery), quality scores, and lead time trends as an early warning system. A simple monthly performance review could save you from costly surprises.

2. Approach with Curiosity, Not Accusation

When a supplier underperforms, it’s easy to jump into “fix-it” mode. But imagine being on the other side—your client is frustrated, tensions are high, and you feel like you’re under attack. That’s not a recipe for collaboration.

Instead, lead with curiosity. Frame the conversation around problem-solving rather than finger-pointing.

Try saying:

“We’ve noticed some challenges with delivery timelines recently, and we’d love to understand what’s going on from your side. Are there any bottlenecks or external pressures we should be aware of?”

This approach sets the tone for collaboration. In SRM, this is critical. Strong relationships are built on trust, and trust thrives when suppliers know you’re genuinely invested in understanding their challenges, not just policing their performance.

3. Dig Into Root Causes Together

Sometimes, poor supplier performance has nothing to do with the supplier’s capabilities. External factors like port delays, labor shortages, or even unrealistic expectations on your side could be at play.

This is where SPM shines. Your data can help pinpoint where issues are happening:

• Are raw material shortages affecting production?
  
• Is your own forecasting causing last-minute order changes?
  
• Is the supplier struggling with a lack of resources or outdated systems?
  

Collaborating on root cause analysis shifts the narrative from “you failed” to “we have a shared problem to solve.” That’s the essence of SRM—treating suppliers like partners, not vendors.

4. Set Clear Expectations (and Make Them Achievable)

Once you’ve uncovered the issues, it’s time to reset expectations. This step is critical because vague requests like “Please improve your lead times” don’t get results. Instead, create a performance improvement plan (PIP) with:

• Clear, measurable goals (e.g., 95% OTIF in 60 days)
  
• Defined timelines for review and progress
  
• Support resources from your side to help the supplier succeed
  

This shows that you’re not just demanding improvement—you’re invested in making it happen.

5. Provide Support, Not Just Pressure

Here’s the secret: sometimes your supplier is underperforming because they’re overextended, under-resourced, or dealing with challenges they haven’t shared. Offering support can transform your relationship.

Consider:

• Sharing forecasting data to help them plan production better
  
• Offering training or tools to improve quality control
  
• Exploring flexible contract adjustments if pricing pressures are impacting performance
  

A supportive approach creates loyalty and shows that SRM is more than just a management buzzword, it’s about being a strategic partner.

6. Keep the Communication Flowing

One of the biggest mistakes companies make is holding a tough conversation, setting goals, and then going silent until the next quarterly review. Silence breeds uncertainty and resentment.

Instead, schedule regular check-ins to track progress. This could be a bi-weekly call, a monthly performance dashboard review, or even a shared Slack channel for real-time updates.

Consistent communication demonstrates that you’re engaged in the solution and helps build trust.

7. Know When It’s Time to Walk Away (Gracefully)

Let’s be honest—sometimes, despite your best efforts, a supplier isn’t the right fit. And that’s okay. The goal is not to save every relationship at all costs but to handle transitions with professionalism and empathy.

If you do decide to part ways:

• Give constructive feedback
  
• Honor contractual commitments
  
• Leave the door open for future opportunities
  

Burning bridges rarely benefits anyone. Ending a supplier relationship respectfully maintains your reputation and keeps doors open down the road.

Why This Matters More Than You Think

In today’s interconnected supply chains, suppliers aren’t just vendors—they’re partners in your success. Treating them with empathy during tough times strengthens loyalty and can even lead to innovative solutions you wouldn’t have uncovered otherwise.

That’s why effective Supplier Performance Management (SPM) isn’t just about scorecards; it’s about strategy. And strong Supplier Relationship Management (SRM) is more than having coffee with your suppliers; it’s about building resilient, mutually beneficial partnerships.

Final Thoughts

Handling underperforming suppliers isn’t easy, but it doesn’t have to be adversarial. By approaching these challenges with empathy, structured data, and a commitment to collaboration, you can transform tough conversations into opportunities for growth.

In procurement, the companies that win aren’t always the ones with the biggest budgets—they’re the ones who know how to nurture their supplier relationships, even when things get rocky.

So, the next time a supplier drops the ball, don’t just pull out the contract and threaten penalties. Pick up the phone, ask questions, and lean into the principles of SPM and SRM. You might just turn a struggling supplier into one of your strongest allies.